Investors dump Breville shares on likely contract loss

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The likely loss of a major contract and softer guidance has seen Breville Group shares heavily sold on Tuesday morning.

Breville shares were down 19.8 per cent to $5.79 in midday trade despite reporting net profit up 8 per cent for the six-months to December 31.

Shaw Stockbroking told clients the result was in line with guidance and consensus, but the focus had turned to Breville’s Keurig contract.

“BRG has once again identified the likely loss of the contract which contributes an estimated 10 per cent of EBITDA [earnings before interest, tax, depreciation and amortisation], but also held out hope of maintaining it, albeit at a significantly reduced rate," the broker said.

Breville provided full-year guidance for earnings growth of 4 to 8 per cent.

Shaw said that implied up to $78.3 million, while consensus expectation was $80.9 million.

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“We note BRG management has never been anything but conservative," the broker said.

“Trading on a cash adjusted financial year 2012-13 price-earnings of 16.9-times and financial year 2013-14 of 15.1-times, with a multi-year history of consistently delivering on its North American, and now international strategy, we believe the potential loss of Keurig is factored into the share price," Shaw said.

“Minor downward adjustments may be made to financial year 2012-13 consensus, but nothing too significant is likely. Our financial year 2013-14 f and consensus may need to come down if Keurig is lost completely."